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Kiron Sarkar
December 5, 2011
Hi there,
The PBoC believes that Chinese property prices have reached a "turning point", reports Bloomberg. Monetary tightening to control inflation
(sensible) and curb property prices has certainly worked, particularly on property prices. The problem, in my humble view, is that property owners/speculators (of which there are many, owning multiple
properties) believed that housing was a one way bet (remind you of
something) and as prices are drop, they are/will try to sell. Given the glut, particularly of certain type of housing, and the recent ludicrously high prices paid, it would appear to me that a bit of selling could turn into a deluge. I understand that a number of Chinese believe that their Government will protect them - well, they may believe that, but....... Most countries around the world have witnessed property bubbles and its after effects - is China different?
- don't think so.
Even more of a concern is the impact of a decline in land/property values for provincial governments, who have relied on revenues raised from land sales to meet their budget requirements. Then there are the banks and the..........;
Chinese November non manufacturing PMI declined sharply to 49.7 from 57.7. Previous data reported that November manufacturing PMI declined to 49.0 from 50.4. Both measures are in contraction territory. Whoops.
HSBC Chinese November services PMI came in at 52.5, from 54.1 in October;
The FT reports that China is preparing for a increase in social unrest, given the weakening economy. The Chinese believe that they need 8.0% GDP growth pa to maintain social stability. Social stability is the No1 priority for the administration, especially so given the impending mass change in the leadership and membership of the (critical) State Council. I regret to say that I believe social tensions will rise - ever increasing capital flight just reinforces my view;
The Russian deputy minister of economy acknowledged that capital flight could amount to US$80bn this year and, in addition, that it is continuing at elevated levels.
Significant increases in public spending has resulted in Russia requiring an oil price of US$120, to balance its budget, according to Citi - other analysts suggest closer to US$100/110, though;
Initial reports suggest that Mr Putin's United Russia party has polled just around 50.1% of the vote (down from 64.3% in 2007), with turnout of approx 49%, amid widespread allegations of vote rigging in favour of Mr Putin's party. If confirmed, these results are a major blow to Mr Putin, who will lose the ability to make constitutional changes - however, it does make sense of the increasing capital flight from Russia, particularly from those who have "benefited" from the current regime. The results (some say the final tally will be even worse for
Putin) is in spite of the Government using strong arm tactics to neuter independent observers - Putin does not want the poll results questioned.
The bottom line is that high end property in places such as London will be in even more in demand, as Russians establish a bolt hold abroad;
Mario Monti's cabinet has approved an austerity and growth package amounting to E30bn over the next 3 years. The plan is to balance the Italian budget in 2013. If the measures currently being undertaken prove insufficient to achieve a balanced budget by 2013, the Italian authorities will raise VAT in the 2nd half of 2012. GDP forecasts have been lowered - to a negative -0.4/5% next year and flat for 2013.
These forecasts remain optimistic - expect even worse numbers. The Government is to take on measures to encourage growth and youth employment.
The passage of this budget is the 1st step to Fridays "deal" on the future of the Euro Zone/Euro - which, in spite of a number of you remaining highly sceptical, is the likely outcome, in my humble opinion - based on current info admittedly. The real issue is whether the details of a "deal" will be enough for the markets.....;
The Irish Government has proposed further austerity measures in the budget to be presented to Parliament. The measures include increases in VAT (to 23%, from 21% currently) and motor tax and cuts in entitlement expenditure and are expected to be passed. A total of E3.8bn of expenditure cuts and revenue increases is planned with a view of cutting the budget deficit (expected to be 10% this year), to below 3.0% by 2015.
Irish November PMI came in at a much better 52.7, from 51.5 in October;
The FT reports that Mrs Merkel is prepared to accommodate "softer"
language on PSI, which will reduce (though not exempt) losses for private sector bondholders - the changes would be in line with IMF rules and are aimed to reassure bond markets. In exchange, she wants "much stricter" rules on budgetary matters. The necessary changes would be incorporated in the ESM, the permanent fund that replaces the EFSF. As usual, France wants even softer rules - unlikely;
Better UK November services PMI data - up to 52.1, from 51.3 and higher than the 50.5 forecast. The first bit of good news for quite a while.
Euro Zone final November services PMI came in at 47.5, slightly lower than the initial 47.8 reading. Final French PMI was in line with flash estimates, though final German services PMI came in at 50.3, from the flash estimate of 51.4. Interestingly, Italian services PMI came in at 45.8, up from 43.9 in October and better than the 44.0 forecast.
However, Spanish PMI came in at a much lower 36.8, from 41.8 in October, the lowest reading since March 2009;
Yet more evidence of a pick up in the US economy. The normally very pessimistic Mr Dunkelberg of the NFIB (US small business association), reports that hiring amongst his members has increased. Good news as small business is the back bone of US employment;
SUMMARY
By an overwhelming majority, you remain sceptical that the Euro Zone can deliver a reasonable plan by Friday. I can't say I blame you - the Euro Zone has been a disaster to date. However, I see no reason to change my view that the Euro Zone will come up with something that the Market can buy.
The main issue of disagreement is the German requirement for strict budget measures, which will be subject to verification, combined with penalties for non compliance - a must for Germany. France wants "less"
strict rules ie fudge-able. Personally, I hope and, indeed believe, that Germany will win the argument.
Best
Kiron
Merkel calls for rapid EU treaty change
Angela Merkel has called for European Union treaty change to introduce as quickly as possible a legally-binding set of rules for the eurozone’s economic management.
Looking very sombre in a black suit and not deviating from her written text, the German Chancellor said in a speech to the Bundestag, the German parliament, the eurozone was not facing a debt crisis, but a crisis of confidence that would take years to resolve.
http://link.ft.com/r/IOCBMM/ZG74XJ/QE3FX/VLBMBQ/97INN6/T3/h?a1=2011&a2=12&a3=2
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